If you do not have the cash available to buy real estate outright or if you choose not to pay the full purchase price in cash, you will need a loan. The loan is known as a mortgage. A mortgage may be issued by a bank, a mortgage company, or even by the seller of the property. As the borrower, you are referred to as the mortgagor. The lender is referred to as the mortgagee.
The mortgage is a secured loan for which the security is the real estate that you have purchased. If you do not pay your mortgage as promised, the lender can foreclose on the loan and sell the property to recover the amount owed plus interest, fees and costs.
In the case of a coop, the loan is simply called a coop loan. If you purchase a coop, the coop loan is secured by the stock certificate and proprietary lease. Notice is given to the public of the lender's security interest in the coop with a Uniform Commercial Code (UCC) filing with both the State and the county in which the coop is located.
There are different type of mortgages, including conventional, FHA, VA, and Sonyma. Mortgages can have a fixed-rate of interest or variable rates. There are balloon mortgages, interest only mortgages, and negative amortization mortgages. Mortgages come in varying lengths, usually for fifteen or thirty years. Some mortgages require a down payment of 3% of the sales price, others as much as 20%. It is best to check with different lenders to find the best loan for you at the best rate.
If you have good credit, it would best to start by checking with a bank, preferably the bank in which you already have an account. If your credit is not perfect, you may want to check with a mortgage company. The important thing is to contact several different lenders.
Be aware that the real estate agent may want you to use a particular lender, which may not be in your best interest. Try to stay with a known bank. Be especially aware of lenders that promise unrealistically low rates.
Some lenders will “pre-qualify” you for a loan, which may not be meaningful. Many times a person who has been “pre-qualified” finds that he or she is denied a mortgage approval once the loan application is processed. Also, be aware that some lenders will promise to "lock-in" a low rate for 30 or 45 days. Since it usually takes 90 or more days from the mortgage application to closing, the 30 or 45 day "lock-in" will do nothing more than lock you into a lender that will most likely will be raising its rate at or before the closing. Ask what happens if you cannot close within the "lock-in" period. Be sure to get all promises in writing.
You should also ask whether the loan has a fixed or variable rate. If it is a variable-rate loan, how often will the rate change? Also ask how the new rate is established and the maximum amount that the rate can be charged. When shopping for a mortgage, ask the lenders for a complete list of all fees and expenses associated with the mortgage.
After you apply for a loan, the lender will check your credit history and verify your employment and other information that you provided on your application. Usually, about four to eight weeks after your application, you will receive the decision on your mortgage application.
Many sellers are represented by real estate agents. In the vast majority of cases, the agent represents the seller. If you are a purchaser, unless you have a written agreement with a real estate agent that states that the agent is working for you, the agent represents the seller. It is very important to remember this point.
It is the duty of the agent to get the best possible price for the seller. Many agents are truly nice people, but no matter how friendly the agent is, the agent is legally obligated to look out for the best interests of the seller.
The agent is paid on commission when he or she sells the property. The fee is based upon a percentage of the sales price. There is no set fee for a commission. The fee is always negotiable. In New York City, the fee usually varies from 3% to 6%. Outside of New York City, the fee may be as high as 10%.
If you are selling property, you should have a written listing agreement with the real estate agent. The agreement should state the commission and the length of time for the listing. Listings are usually given to a real estate agent for 3 to 6 months. The agreement should also describe the efforts that the real estate agent must take to sell your property, including advertising, Internet and multiply listing organizations. The listing can also name particular parties who are exceptions to the listing, who are parties to whom you may sell without owing a fee to the real estate agent.
The Title Company
After the closing, the title company issues a policy that states that you own the property. If someone thereafter challenges your ownership, the title company will defend your interest in the property in court. If the challenger prevails, the title company will pay you up to the limit of your policy. If you have a mortgage, the title policy will also insure the interest of the lender.
Your lawyer is the only person, other than yourself, who is looking out for your best interests. Do not use an attorney recommended by the real estate agent or any other parties involved in the transaction. You want to be certain that your attorney's allegiance is only to you. Do not look for a "bargain" when selecting an attorney. A bargain can become a costly mistake. You want to be certain that your lawyer is being paid sufficiently, so that he or she can spend enough time on your matter.
The best way to find an attorney is by personal experience or a recommendation from a friend or relative. Be sure to ask the potential attorney about his or her experience. You do not want a lawyer to be learning on the job when it comes to the purchase or sale of your home.
Be sure not to sign or pay anything without first obtaining your attorney's approval.
The contract should have provisions for engineering and termite inspections of the house. The termite inspection will cost between $100 and $200, and the engineer inspection for a one or two family house will cost between $400 and $600.
Inspections may occur prior to or after signing the contract. If the inspections are to occur after signing the contract, there must be provisions for the inspections. Such provisions commonly provide the following options in the event that serious problems are discovered as a result of the inspections:
- A reduction in the sales price;
- The Seller will correct the problems; or
- The Purchaser may cancel the contract and be refunded the down-payment.
The termite inspector looks for signs of active termites and other wood-destroying insects. The termite inspection also looks for damage from active or past infestations. All lenders require a termite inspection.
Although an engineer inspection, also known as a home inspection, is not required, it is highly recommended. When hiring an inspector, be sure to use a reputable licensed inspector. The inspection will include an examination of the major systems of the house, including the electrical system, the plumbing, the heating, and the structure.
Sometimes, further inspections, such as for lead, septic or radon, are appropriate. If so, they should be specified in the contract.
Differences between a Coop and a Condo
In most of the country, condominiums, also known as condos, are far more common than cooperatives, also commonly known as coops. In New York City, however the opposite is true; coops far outnumber condos. However, almost all new construction in New York is comprised of condos.
When you buy a coop apartment, you are not buying real estate. Instead, you are buying shares in the corporation that owns the building in which you wish to live.
When you buy a coop, you will receive a stock certificate and a proprietary lease. When you buy a condo, you will be buying a portion of the building in which the condo unit is located. You actually own the space within your unit and a share of the outer areas that are owned in common by all of the unit owners. You receive a deed to show your ownership.
The owner of either a coop or a condo pays a monthly fee. In the case of a coop, the fee is called a" maintenance fee." In the case of a condo, the fee is called a "common charge." The monthly fee paid to the coop for an apartment is usually larger than the monthly fee paid to the condo association for a condo unit of comparable size.
The vast majority of coops carry a mortgage. The maintenance fee includes that coop owner's share of the mortgage and taxes on the building. The coop owner may deduct a percentage of the maintenance fee against the owner’s taxes. In addition to the mortgage and taxes, the maintenance fee includes expenses for maintenance and upkeep of the building. Likewise, the common charge for a condo includes maintenance and upkeep of the building.
Although a coop is usually less expensive to buy than a condo, buying a coop is riskier, because you are buying shares in a corporation. If the corporation is in bad financial shape, you could lose your coop and the money you invested in it. Even worse, after losing your coop, you would still have to pay the coop loan. Many lenders will not lend money for a coop purchase if the coop consists of only a few units or if too few of the units have been sold. Beware of coops that have large balloon payments coming due or tax abatements that will be ending. In addition, beware of coops that do not own the land on which the building is located. They may only have a lease on the land for a set period of time, at the end of which, the land will revert from the coop to the owner of the land.
In most cases, the purchase of a coop requires approval by the coop board. In addition, the right to rent a coop apartment to others may be severely restricted. Both coops and condos have boards of unit owners. In addition, both coops and condos have rules that the apartment or unit owners must follow. In both coops and condos, a special charge, known as an assessment, can be charged to the apartment or unit owners in the event that expenses for the building become necessary.
When buying a coop or condo, make sure that they have a healthy reserve for major future repairs. Also, when buying a coop or condo, find out if there is a tax abatement of some type and, if so, when it will expire and how much its expiration will raise your taxes. Also, in both coops and condos, the monthly fees may have to be increased to meet increased costs for operating the building.After the closing, the title company issues a policy that states that you own the property. If someone thereafter challenges your ownership, the title company will defend your interest in the property in court. If the challenger prevails, the title company will pay you up to the limit of your policy. If you have a mortgage, the title policy will also insure the interest of the lender.